Capital of an enterprise: formation and use

Taras Shevchenko NATIONAL UNIVERSITY OF Kyiv
FACULTY OF ECONOMICS
department of ENTERPRISE ECONOMICS

                  

 

 

Approved

 

 

R.V. Pykus

Deputy Dean

Academic Affairs

                                                                                     «____»______20__ .

 

 

 

Capital of an enterprise: formation and use

 

COURSE PROGRAMME

 

for undergraduate students

 

 

Field of study            0305 Economics and entrepreneurship

Core course:              6.030504 Enterprise Economics

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Kyiv, 2016

Capital of an enterprise: formation and use Course Programme for students of fields of study 0305 Economics and entrepreneurship, 6.030504 Enterprise Economics core course.

 

Compiled by: Associate Professor O. Yu. Miroshnychenko

 

The programme was adopted at the meeting of the Department of enterprise economics. 

 

Minutes No. ___ of __________________ 2016

 

Head  _____________________                       G.M. Fyluk

   (Signature)                                        (Name)

 

 

Approved at the meeting of the Commission on Science and Methodology of the Faculty of Economics.

 

Minutes No. ___ of __________________ 2016

Chairman    _____________________                       T.M. Lytvynenko

   (Signature)                                                              (Name)

 

«_____» _________________ 20___

 

 

 

 

 

 

 

 

© O. Miroshnychenko, 2016

© ________________, 20__

© ________________, 20__

INTRODUCTION

 

Course “Capital of an enterprise: formation and use” is the constituent of the educationally-professional programme for educationally-qualifying level “bachelor degree” of field of study 0305 Economics and entrepreneurship, 6.030504  Enterprise Economics core course.

This course is from the cycle of choice of University of Enterprise Economics core course is lectured in 4 semester, has 120 hours (4 credits of ECTS) in particular: lectures – 28 hours, seminar – 28 hours, work without assistance – 64 hours. Course includes 2 modulus and 2 tests. Discipline is completed by a test.

The main purpose of the discipline is mastering of the knowledge about the foundations of managing capital system, valuation methodologies capital of the enterprise, theories of capital structure of the enterprise; and acquiring skills to manage the capital structure of the enterprise and evaluating the effectiveness of the process.

The main assignments are: development of practical skills of students on the formation of the optimal capital structure of enterprises, evaluating effectiveness the use of different types of capital in order to ensure the financial soundness and competitive capacity of enterprises.

Structure of course. Course “Capital of an enterprise: formation and use” consists of 2 modulus. The module 1 “Introducing to capital management” Modulus 2 “Cost of Capital and Capital Structure”.

As a result of study of educational discipline a student must:

to know:

-          the basic tenets and structural elements of the system of formation and use of capital enterprise;

-          the theory of capital structure;

-          the methods of evaluating the cost of capital of the enterprise;

-          the models for assessing effectiveness of formation and use of capital enterprise.

be able:

-          to determine the weighted average cost and marginal cost of capital;

-          to assess the value of individual elements of equity and debt capital of the company;

-          to shape emission and dividend policy of the enterprise;

-          to justify the choice of financial instruments to attract debt capital;

-          to manage working, fixed and intellectual capital enterprise;

-          to evaluate the effectiveness of capital management;

-          to develop recommendations for optimizing the capital structure of the enterprise.

The place of discipline in the structure scheme of core course. The alternative discipline “Capital of an enterprise: formation and use” is a part of professional training cycle of bachelor’s degree program. The bases of its understanding are such disciplines as “Enterprise Economics”, “Economic analysis”, “Management”, “Accounting”, “Investment”.

Control of knowledge and distribution of balls which get students. Control is carried out after the module-rating system. The module 1 consists of 1 – 5 themes, and the module 2 consists of  6 – 9. The student must have minimum – 20 balls for testing, but the recommended minimum is 34 balls. In another case, a student mustn’t be tested.

Estimation :

	Мodulus 1		Мodulus 2
	Min. – 18 balls	Max.- 30 balls	Min. -  20 balls	Max.-30 balls
Verbal answer	4	6	3	5
Addition	3	5	5	6
Express-control in form tests	3	4	3	4
Essay	2	4	3	4
Module test1	2	5
Module test 2			2	5
Work without assistance	4	6	4	6

For students, which collected totally less of balls than critically minimum for the receipt of examination obligatory is writing of additional work without assistance, retaking of module test, writing of abstract after new subjects.

In the case of absence of student on good reasons of working off and retaking of test carried out in accordance with “Statute about the order of evaluation of knowledge of students at the credit-module system of organization of educational process” from October, 1, 2010.

 

As a result:

	Modulus 1	Modulus 2	Test	Total
Minimum	18	20	22	60
Maximum	35	35	30	100

 

 

 

 

 

 

 

 

 

 

 

The result:

1-34 – «unsatisfactorily» compulsory refresher course;

35-59 – «unsatisfactorily» repeated test;

60-64 – «satisfactorily» («sufficient grounds»);

65-74 – «satisfactorily»;

75 - 84 – «good»;

85 - 89 – «good» («very good»);

90 - 100 – «excellent».

100 marks	National scale mark
90 – 100	5	excellent
85 – 89	4	good
75 – 84
65 – 74	3	satisfactorily
60 – 64
35 – 59	2	unsatisfactorily
1 – 34

 

 

 

 

 

STRUCTURE OF DISCIPLINE

PLAN OF LECTURES AND SEMINARS

 

 

Total – 120 hours.

Lectures – 28 hours.

Seminars – 28 hours

Individual work – 64 hours.

COURSE PROGRAMME

 

MODULUS 1. INTRODUCTION TO CAPITAL MANAGEMENT AND CAPITAL BUDGETING

 

Lecture 1-2. The Goal of Capital Management and Forms of Business Organization (4 hours)

Capital Management Decisions. Capital Budgeting. Capital Structure. Working Capital Management. Forms of Business Organization. Sole Proprietorship. Partnership. Forms of Partnership in Ukraine. Limited Liability Partnership. Additional Liability Partnership. Full Liability Partnership. Differentiated Liability Partnership. Corporation. Advantages and Disadvantages of Different Forms of Business Organization. The Goal of Capital Management.

 

Seminar 1-2. The Goal of Capital Management and Forms of Business Organization (4 hours)

1.   Capital Management Decisions.

2.   Forms of Business Organization.

3.   Forms of Partnership in Ukraine.

4.   The Goal of Capital Management.

 

Reports for the independent working

1. The Agency Problem and Control of the Corporation.
2. Financial Markets and the Corporation.

 

Concept Questions

1. What are the three types of financial capital decisions? For each type of decision, give an example of a business transaction that would be relevant.
   1. What is the capital budgeting decision?
   2. What do you call the specific mixture of long-term debt and equity that a firm chooses to use?
      1. Into what category of financial management does cash management fall?
      2. What are the three forms of business organization?
   3. What are the four primary disadvantages of the sole proprietorship and partnership forms of business organization? What benefits are there to these types of business organization as opposed to the corporate form?
      1. What is the primary disadvantage of the corporate form of organization?
      2. Name at least two of the advantages of corporate organization.
   4. What are the primary advantages and disadvantages of sole proprietorships and partnerships?
   5. What is the difference between a general and a limited partnership?
   6. Why is the corporate form superior when it comes to raising cash?
   7. What is the goal of capital management?
   8. What are some shortcomings of the goal of profit maximization?
   9. Can you give a definition of capital management?

 

Lecture 3-4. Financial Statements and Cash Flow (4 hours)

The Balance Sheet. Classification of assets. Current assets and non-current assets. Liabilities and equity. Current or long-term liabilities. Net working capital. Liquidity. Debt versus equity. Market value versus book value. The Income Statement. The income statement equation. Earnings per share (EPS).  Gross income (loss). Financial result from operating activity (income or loss). Financial result before taxes (income or loss). Net financial result (income or loss). Cash Flow. Cash flow from assets. Cash flow to creditors. Cash flow to stockholders. Operating cash flow. Capital spending. Change in net working capital.

 

Seminar 3-4. Financial Statements and Cash Flow (4 hours)

1. The Balance Sheet.

2. The Income Statement.

3. Cash Flow.

 

Reports for the independent working

1. The Procedure for Compiling the Balance Sheet.
2. The Procedure for Compiling the Income Statement.
3. Corporate taxes and tax rates.

 

Concept Questions

1. What is the balance sheet identity?
2. What is liquidity? Why is it important?
3. What do we mean by financial leverage?
4. Explain the difference between accounting value and market value. Which is more important to the financial manager? Why?
5. What is the income statement equation?
6. What are the three things to keep in mind when looking at an income statement?
7. Why is accounting income not the same as cash flow? Give two reasons.
8. What is the cash flow identity? Explain what it says.
9. What are the components of operating cash flow?
10. Why is interest paid not a component of operating cash flow?
11. In comparing accounting net income and operating cash flow, what two items do you find in net income that is not in operating cash flow? Explain what each is and why it is excluded in operating cash flow.
12. Under standard accounting rules, it is possible for a company’s liabilities to exceed its assets. When this occurs, the owners’ equity is negative. Can this happen with market values? Why or why not?
13. Suppose a company’s cash flow from assets was negative for a particular period. Is this necessarily a good sign or a bad sign?
14. Suppose a company’s operating cash flow was negative for several years running. Is this necessarily a good sign or a bad sign?
15. Could a company’s change in NWC be negative in a given year? (Hint: yes.) Explain how this might come about. What about net capital spending?
16. Could a company’s cash flow to stockholders be negative in a given year? (Hint: yes.) Explain how this might come about. What about cash flow to creditors?

 

Lecture 5-6. Working with Financial Statements

Sources and Uses of Cash. The net addition to cash. The Statement of Cash Flows. Operating activity. Financing activity. Investment activity. Ratio Analysis. Financial ratios.  Short-term solvency, or liquidity, ratios. Long-term solvency, or financial leverage, ratios. Asset management, or turnover, ratios. Profitability ratios. Market value ratios. The Du Pont Identity. Return on equity (ROE). Return on assets (ROA).

 

Seminar 5-6. Working with Financial Statements (4 hours)

1. Sources and Uses of Cash.
2. The Statement of Cash Flows.
3. Ratio Analysis.
4. The Du Pont Identity.

 

Reports for the independent working

1. The Procedure for Compiling the Statement of Cash Flows.
2. Standardized Financial Statements.
3. Using Financial Statement Information.

 

Concept Questions

1. What is a source of cash? Give three examples.
2. What is a use, or application, of cash? Give three examples.
3. What are the five groups of ratios? Give two or three examples of each kind.
4. What effect would the following actions have on a firm’s current ratio? Assume that net working capital is positive.

a. Inventory is purchased.

b. A supplier is paid.

c. A short-term bank loan is repaid.

d. A long-term debt is paid off early.

e. A customer pays off a credit account.

f. Inventory is sold at cost.

g. Inventory is sold for a profit.

1. Turnover ratios all have one of two figures as the numerator. What are these two figures? What do these ratios measure? How do you interpret the results?
2. Profitability ratios all have the same figure in the numerator. What is it? What do these ratios measure? How do you interpret the results?
3. Given the total debt ratio, what other two ratios can be computed? Explain how.
4. Return on assets, or ROA, can be expressed as the product of two ratios. Which two?
5. Return on equity, or ROE, can be expressed as the product of three ratios. Which three?
6. In recent years, corporation has greatly increased its current ratio. At the same time, the quick ratio has fallen. What has happened? Has the liquidity of the company improved?
7. Explain what it means for a firm to have a current ratio equal to .50. Would the firm be better off if the current ratio were 1.50? What if it were 15.0? Explain your answers.
8. Why is the Du Pont identity a valuable tool for analyzing the performance of a firm? Discuss the types of information it reveals as compared to ROE considered by itself.

 

Lecture 7. Net Present Value and Other Investment Criteria (2 hours)

Net Present Value ((NPV). Estimating Net Present Value. Discounted cash flow (DCF) valuation. Discounted cash flow criteria. Net present value rule. Payback criteria. The Payback Rule. Defining the Rule. Payback period. Calculating Payback. Analysing the Rule. Redeeming Qualities of the Rule. Summary of the Rule. The Discounted Payback. Calculating Discounted Payback. Accounting criterion. The Average Accounting Return (AAR). The Internal Rate of Return (IRR). Net Present Value Profile. Calculating the IRR. Problems with the IRR. Multiple Rates of Return. Mutually Exclusive Investment Decisions. The Profitability Index (PI).

 

Seminar 7. Net Present Value and Other Investment Criteria (2 hours)

1. Net Present Value ((NPV).
2. The Payback Rule.
3. The Discounted Payback.
4. The Average Accounting Return (AAR).
5. The Internal Rate of Return (IRR).
6. The Profitability Index (PI)

 

Reports for the independent working

1. The Practice of Capital Budgeting.

2. Making Capital Investment Decisions.

 

Concept Questions

1. What is the net present value rule?
2. If we say an investment has an NPV of $1,000, what exactly do we mean?
3. In words, what is the payback period? The payback period rule?
4. Why do we say that the payback period is, in a sense, an accounting breakeven measure?
5. In words, what is the discounted payback period? Why do we say it is, in a sense, a financial or economic break-even measure?
6. What advantage(s) does the discounted payback have over the ordinary payback?
7. What is an average accounting rate of return (AAR)?
8. What are the weaknesses of the AAR rule?
9. Under what circumstances will the IRR and NPV rules lead to the same accept-reject decisions? When might they conflict?
10. Is it generally true that an advantage of the IRR rule over the NPV rule is that we don’t need to know the required return to use the IRR rule?
11. What does the profitability index measure?
12. How would you state the profitability index rule?
13. What are the most commonly used capital budgeting procedures?
14. If NPV is conceptually the best procedure for capital budgeting, why do you think multiple measures are used in practice?

 

Lecture 8. Break-Even Analysis and Operating Leverage (2 hours)

Forecasting risk. Scenario analysis. Sensitivity analysis.  Simulation analysis. Break-Even Analysis. Fixed and Variable Costs. Total Costs. marginal, or incremental, cost. Marginal, or Incremental, Revenue. Accounting Break-Even. Uses for the Accounting Break-Even. Operating Cash Flow, Sales Volume, and Break-Even. Cash Flow, Accounting, and Financial  Break-Even Points. Cash Break-Even. Financial Break-Even. Operating Leverage. Implications of Operating Leverage. Measuring Operating Leverage. Degree of Operating Leverage (DOL).

 

Seminar 8. (2 hours)

1. Forecasting Risk and Types of What-if analysis.
2. Break-Even Analysis.
3. Operating Cash Flow, Sales Volume, and Break-Even.
4. Operating Leverage.

 

Report for the independent working

1. Additional Considerations in Capital Budgeting.

 

Concept Questions

1. What is forecasting risk? Why is it a concern for the financial manager?
2. How are fixed costs similar to sunk costs?
3. What is net income at the accounting break-even point? What about taxes?
4. Why might a financial manager be interested in the accounting break-even point?
5.  If a project breaks even on an accounting basis, what is its operating cash flow?
6. If a project breaks even on a cash basis, what is its operating cash flow?
7. If a project breaks even on a financial basis, what do you know about its discounted payback?
8. What is operating leverage?
9. How is operating leverage measured?
10. What are the implications of operating leverage for the financial manager?

 

EXAMPLE OF MODULE TEST № 1

 

1. 1.    Answer the questions:

 

1.1.         What are the three types of capital management decisions? For each type of decision, give an example of a business transaction that would be relevant.

1.2.         What are the four primary disadvantages of the sole proprietorship and partnership forms of business organization? What benefits are there to these types of business organization as opposed to the corporate form?

1.3.         In comparing accounting net income and operating cash flow, what two items do you find in net income that is not in operating cash flow? Explain what each is and why it is excluded in operating cash flow.

 

1. 2.    Give the definitions: net working capital, cash flow, current assets, operating leverage, net present value.

 

1. 3.    Calculating Operating Leverage. At an output level of 30,000 units, you calculate that the degree of operating leverage is 2. If output rises to 35,000units, what will the percentage change in operating cash flow be? Will the new level of operating leverage be higher or lower? Explain.

 

1. 4.    Calculating Total Cash Flows. Eric-Cartman Co. shows the following information on its 2015 income statement: sales - $65,000; costs - $41,000;

other expenses - $1,750; depreciation expense - $3,000; interest expense - $7,000; taxes - $4,165; dividends - $3,200. In addition, you’re told that the firm issued $1,415 in new equity during 2015, and redeemed $3,000 in outstanding long-term debt.

a. What is the operating cash flow?

b. What is the cash flow to creditors?

c. What is the cash flow to stockholders?

d. If net fixed assets increased by $2,500 during the year, what was the addition to NWC?

 

 

MODULUS 2. COST OF CAPITAL AND CAPITAL STRUCTURE

 

Lecture 9-10. Cost of Capital (4 hours)

The Cost of Capital. Required Return versus Cost of Capital. Financial Policy and Cost of Capital. The Cost of Equity. The Dividend Growth Model Approach. The SML Approach. The Costs of Debt and Preferred Stock. The Weighted Average Cost of Capital. The Capital Structure Weights. Taxes and the Weighted Average Cost of Capital.

 

Seminar 9-10. (4 hours)

1. The Cost of Capital: Some Preliminaries.
2. The Cost of Equity.
3. The Costs of Debt and Preferred Stock.
4. The Weighted Average Cost of Capital.

 

Reports for the independent working

1. Divisional and Project Costs of Capital.
2. Flotation Costs and the Weighted Average Cost of Capital.
3. Capital Pricing Model (CAMP).
4. Raising Capital.

 

Concept Questions

1. What is meant by the term cost of capital?
2. What is the primary determinant of the cost of capital for an investment?
3. What is the relationship between the required return on an investment and the cost of capital associated with that investment?
4. What do we mean when we say that a corporation’s cost of equity capital is 16 percent?
5. What are two approaches to estimating the cost of equity capital?
6. How can the cost of debt be calculated?
7. How can the cost of preferred stock be calculated?
8. Why is the coupon rate a bad estimate of a firm’s cost of debt?
9. How is the WACC calculated?
10. Why do we multiply the cost of debt by (1 – TC) when we compute the WACC?
11. Under what conditions is it correct to use the WACC to determine NPV?
12. On the most basic level, if a firm’s WACC is 12 percent, what does this mean?
13.  In calculating the WACC, if you had to use book values for either debt or equity, which would you choose? Why?
14. If you can borrow all the money you need for a project at 6 percent, doesn’t it follow that 6 percent is your cost of capital for the project?
15. Why do we use an after tax figure for cost of debt but not for cost of equity?
16. What are the advantages of using the DCF model for determining the cost of equity capital? What are the disadvantages? What specific piece of information do you need to find the cost of equity using this model? What are some of the ways in which you could get this estimate?

 

Lecture 11. Financial Leverage and Capital Structure Policy (2 hours)

The Capital Structure Question. Capital Structure and the Cost of Capital. Determinants of Capital Structure The Effect of Financial Leverage. The Basics of Financial Leverage. EPS versus EBIT. Corporate Borrowing and Homemade Leverage. Bankruptcy Costs. Direct Bankruptcy Costs. Indirect Bankruptcy Costs. Bankruptcy Process. Liquidation and Reorganization. Absolute Priority Rule (APR).

 

Seminar 11. (2 hours)

1. Capital Structure Concept.
2. Planning the Capital Structure.
3. The Effect of Financial Leverage.
4. Bankruptcy Costs.
5. Bankruptcy Process.

 

Reports for the independent working

1. Optimal Capital Structure and the Cost of Capital.
2. Bankruptcy Process in Ukraine.

 

Concept Questions

1. Why should financial managers choose the capital structure that maximizes the value of the firm?
2. What is the relationship between the WACC and the value of the firm?
3. What is an optimal capital structure?
4. What is the impact of financial leverage on stockholders?
5. What is homemade leverage?
6. What are direct bankruptcy costs?
7. What are indirect bankruptcy costs?
8. What are the important factors in making capital structure decisions?
9. What regularities do we observe in capital structures?
10. What is the APR?
11. What is the difference between liquidation and reorganization?

 

Lecture 12-13. Theories of Capital structure (4 hours)

Net Income Approach (NI). Net Operating Income (NOI). Modigliani – Miller Model (MM). MM Proposition I with Zero Taxes. MM Proposition II with Zero Taxes. MM Proposition I with Taxes. MM Proposition II with Taxes. Trade-off theory. Agency theory. Signalling theory.

 

Seminar 12-13. (4 hours)

1. Net Income (NI) Theory.
2. Net Operating Income (NOI) Theory.
3. Traditional Theory.
4. Modigliani – Miller Models (MM I, MM II).
5. Miller’s hypothesis with corporate and personal taxes.
6. Trade-off theory.
7. Agency theory.
8. Signalling theory

 

Reports for the independent working

1. The Static Theory of Capital Structure.
2. The Dynamic Theory of Optimal Capital Structure.

 

Concept Questions

1. What does M&M Proposition I state?
2. What does M&M Proposition II state?
3. What are the three determinants of a firm’s cost of equity?
4. The total systematic risk of a firm’s equity has two parts. What are they?
5.  Can you describe the trade-off that defines the static theory of capital structure?

 

Lecture 14. Dividends and Dividend Policy (2 hours)

Cash Dividends and Dividend Payment. Dividend. Distribution. Regular Cash Dividend. Standard Method of Cash Dividend Payment. Declaration date. Ex-dividend date. Date of record. Date of payment. Dividend Policy Matter. An Illustration of the Irrelevance of Dividend Policy. Homemade dividend policy. Real-World Factors Favouring a Low Pay-out. Expected Return, Dividends, and  Personal Taxes. Flotation Costs. Dividend Restrictions. Real-World Factors Favouring High Pay-out. Tax and Legal Benefits from High Dividends. Information Content of Dividends. The Clientele Effect.

 

Seminar 14. (2 hours)

1. Cash Dividends and Dividend Payment.
2. Dividend Policy Matter.
3. Real-World Factors Favouring Low Pay-out.
4. Real-World Factors Favouring High Pay-out.
5. Information Content of Dividends. The Clientele Effect.

 

Reports for the independent working

1. Establishing a Dividend Policy.
2. Theories of Dividend Policy.

 

 

Concept Questions

1. What are the different types of cash dividends?
2. What are the mechanics of the cash dividend payment?
3. How should the price of a stock change when it goes ex dividend?
4. How can an investor create a homemade dividend?
5. Are dividends irrelevant?
6. What are the tax benefits of low dividends?
7. Why do flotation costs favour a low pay-out?
8. Why might some individual investors favour a high-dividend pay-out?
9. Why might some nonindividual investors prefer a high-dividend pay-out?
10. How does the market react to unexpected dividend changes? What does this tell us about dividends? About dividend policy?
11. What is a dividend clientele? All things considered, would you expect a risky firm with significant but highly uncertain growth prospects to have a low- or high-dividend pay-out?

 

EXAMPLE OF MODULE TEST № 2

 

1. 1.    Answer the questions:

 

1.1.         What are the advantages of using the DCF model for determining the cost of equity capital? What are the disadvantages? What specific piece of information do you need to find the cost of equity using this model? What are some of the ways in which you could get this estimate? Explain what is meant by business and financial risk. Suppose Firm A has greater business risk than Firm B. Is it true that Firm A also has a higher cost of equity capital?

1.2.         What is the chief drawback to a strict residual dividend policy? Why is this problem? How does a compromise policy work? How does it differ from a strict residual policy? In comparing accounting net income and operating cash flow, what two items do you find in net income that is not in operating cash flow? Explain what each is and why it is excluded in operating cash flow.

 

1. 2.    Give the definitions: capital structure, cost of capital, financial leverage, homemade dividend policy, direct bankruptcy costs.

 

1. 3.    Calculating Cost of Debt. Peyton’sColt Farm issued a 30-year, 7 percent semiannual bond 11 years ago. The bond currently sells for 104 percent of its face value. The company’s tax rate is 35 percent.

a. What is the pretax cost of debt?

b. What is the after tax cost of debt?

c. Which is more relevant, the pretax or the after tax cost of debt? Why?

 

1. 4.    Finding the WACC. Given the following information for Columbia Power Co., find the WACC. Assume the company’s tax rate is 35 percent. Debt: 4,000 8 percent coupon bonds outstanding, $1,000 par value, ten years to maturity, selling for 101 percent of par; the bonds make semiannual payments.

Common stock: 50,000 shares outstanding, selling for $62 per share; the beta is 1.10.

Preferred stock: 9,000 shares of 4 percent preferred stock outstanding, currently selling for $60 per share.

Market: 5 percent market risk premium and 6 percent risk-free rate.

 

REPORTS FOR THE INDEPENDENT WORKING

 

1. The Agency Problem and Control of the Corporation.
2. Financial Markets and the Corporation.
3. The Procedure for Compiling the Balance Sheet.
4. The Procedure for Compiling the Income Statement.
5. Corporate taxes and tax rates.
6. The Procedure for Compiling the Statement of Cash Flows.
7. Standardized Financial Statements.
8. Using Financial Statement Information.
9. The Practice of Capital Budgeting.
10. Making Capital Investment Decisions.
11. Additional Considerations in Capital Budgeting.
12. Divisional and Project Costs of Capital.
13. Flotation Costs and the Weighted Average Cost of Capital.
14. Capital Pricing Model (CAMP).
15. Raising Capital.
16. Optimal Capital Structure and the Cost of Capital.
17. Bankruptcy Process in Ukraine.
18. The Static Theory of Capital Structure.
19. The Dynamic Theory of Optimal Capital Structure.
20. Establishing a Dividend Policy.
21. Theories of Dividend Policy.

 

 

 

LIST OF QUESTIONS

 

1. Capital Management Decisions.
2. Forms of Business Organization.
3. Forms of Partnership in Ukraine.
4. The Goal of Capital Management.
5. The Balance Sheet.
6. The Income Statement.
7. Cash Flow.
8. Sources and Uses of Cash.
9. The Statement of Cash Flows.
10. Ratio Analysis.
11. The Du Pont Identity.
12. Net Present Value ((NPV).
13. The Payback Rule.
14. The Discounted Payback.
15. The Average Accounting Return (AAR).
16. The Internal Rate of Return (IRR).
17. The Profitability Index (PI).
18. Break-Even Analysis.
19. Operating Cash Flow, Sales Volume, and Break-Even.
20. Operating Leverage.
21. The Cost of Capital: Some Preliminaries.
22. The Cost of Equity.
23. The Costs of Debt and Preferred Stock.
24. The Weighted Average Cost of Capital.
25. Capital Structure Concept.
26. Planning the Capital Structure.
27. The Effect of Financial Leverage.
28. Bankruptcy Costs.
29. Bankruptcy Process.
30. Net Income (NI) Theory.
31. Net Operating Income (NOI) Theory.
32. Traditional Theory.
33. Modigliani – Miller Models (MM I, MM II).
34. Miller’s hypothesis with corporate and personal taxes.
35. Trade-off theory.
36. Agency theory.
37. Signalling theory.
38. Cash Dividends and Dividend Payment.
39. Dividend Policy Matter.
40. Real-World Factors Favouring Low Pay-out.
41. Real-World Factors Favouring High Pay-out.
42. Information Content of Dividends. The Clientele Effect.

 

REFERENCES

 

1. 1.    Dictionary of Finance and Investment Terms (Barron's Business Dictionaries), 2014. – 912 p.
2. 2.    Eugene F. Brigham Financial Management: Theory & Practice. 13th Edition, 2011. – 1184.
3. 3.    Ludwig M. Lachmann Capital and its Structure, 1978. – 140 p.
4. 4.    Modigliani F. The Cost of Capital, Corporation Finance, and the Theory of Investment / F. Modigliani, M.N. Miller // American Economic Review. - June 1958. – P. 261-297.
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